The Government should take recourse to borrowings only for the creation of long-term assets. This will help generate income streams that can help in servicing the loans Recently, the International Monetary Fund (IMF) has forecast that India’s general government debt – it comprises the debts of the Centre and states – will overshoot 100 per cent of the GDP (gross domestic product) by the financial year (FY) 2027-28. Responding to this, the Ministry of Finance (MoF) clarified that this wasn’t under a ‘baseline scenario’ – a jargon to describe normal economic conditions. It added the IMF was referring to a ‘worst-case scenario’ wherein a global shock would equally affect all countries. Is the government’s debt sustainable? The government’s debt is...
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Category: Economic outlook
Differentiating welfare schemes from freebies
As election pledges of freebies escalate, Modi Government issues a warning to States at the third National Conference of Chief Secretaries In the third National Conference of Chief Secretaries held in Delhi on 28th and 29th December 2023 under the chairmanship of Prime Minister Shri Narendra Modi, the central government cautioned the states against giving freebies, and goaded them to increase capital expenditure by rationalizing welfare schemes with emphasis on eliminating inefficient subsidies. The Centre’s concern over freebies – an acronym for “something given free of charge” – has heightened because of a volley of these promised by almost all political parties in five state elections held in November 2023. It apprehends that the freebies would drain state coffers, lead...
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Establishing a robust and resilient tax system
The Modi Government has successfully addressed all key aspects to ensure the strength and resilience of the tax system The robustness of the tax regime in a country can be tested by looking at its ability to engineer and sustain an accelerated growth in its GDP (gross domestic product); help the government in garnering tax revenue commensurate to growth in GDP and be ‘progressive’ in as much as it collects more taxes from those who can afford to pay more while imposing less burden on those who can’t. Look at the growth in real GDP which is GDP at constant prices. After a decline of 5.8 percent during 2020-21 caused by Corona – pandemic, growth in real GDP rebounded to...
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The Centre has no control over subsidies
The biggest drawback with the current system of food subsidy is making it available at throwaway prices. It allures dubious players who buy it cheap and sell it at higher prices The Union government’s total expenditure on the three major subsidies – fertiliser, food and cooking gas – during the current financial year (FY) is likely to be around Rs 400,000 crore as against Rs 549,000 crore spent during FY 2022-23. From this, it might appear that the government has made serious efforts to trim the subsidy. But, looking at the situation on ground zero, this isn’t so. The subsidy on each tonne of fertiliser produced (or imported) and sold is the excess of the cost of production/import and distribution...
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New mechanism to ensure utilisation of funds
The new mechanism would regulate the release of funds to the states and track their use, thereby preventing idling The Union government executes a plethora of welfare programs aimed at providing basic and necessary amenities and upliftment of the most disadvantaged members of society. It does so mainly through “Central Schemes” (CS) which are fully funded and implemented by it. A total of 740 CS schemes are currently under implementation. During FY2022-23, the CS spending was Rs 1208,000 crore In addition, there are “Centrally Sponsored Schemes” (CSS) designed to supplement the efforts of the states in achieving various socioeconomic goals and implementing national priorities. These are funded by the central government and the states in varying proportions viz. 90:10, 60:40,...
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FDI in export–linked e-tailing is a bad idea
When the government expects the foreign companies to do almost everything that a retailer do, how can the former deny the latter the right to sell The government is considering allowing foreign direct investment (FDI) in inventory-based models of e-commerce, subject to the rider that these will be solely aimed at export markets. A comprehensive policy on FDI in e-commerce has been under deliberation since 2018. In fact, during discussions with representatives of e-commerce firms and a domestic traders’ body viz. Confederation of All India Traders (CAIT) held on August 2, 2023, the Department for Promotion of Industry and Internal Trade (DPIIT) in the Ministry of Commerce and Industry made a presentation on the ‘fundamentals’ of the proposed e-commerce policy....
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RBI should loosen the monetary lever
RBI’s decision to keep the policy rate unchanged could pose a serious risk to growth due to a rise in lending rates and higher-cost of loans to industries The Reserve Bank of India (RBI) six-member Monetary Policy Committee (MPC) on December 8, 2023, decided to keep the policy rate (the interest rate at which the RBI lends to banks) unchanged at 6.5 per cent. The MPC has also said that the actions of the RBI will remain “actively disinflationary”. The decision is a continuation of a trend wherein the RBI has been overly obsessed with the management of inflation and aggressively used the two prime monetary policy instruments in its armoury namely the policy rate and liquidity (a jargon for...
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SC should declare poll freebies a corrupt practice
When a candidate uses his money to bribe the voter, it is treated as corrupt practice, but when his party bribes voters using ‘public money’ it is not treated the same way Taking a cue from the practice of mesmerizing voters with freebies – an acronym for “something is given free of charge” – started by the Aam Aadmi Party (AAP) in the February 2020 Delhi elections, early this year, in Karnataka elections, the grand old party (GOP) gave five guarantees (a more respectable nomenclature for freebies) on a grand scale. These delivered the intended result. In the just concluded elections in Madhya Pradesh (MP), Rajasthan, Chhattisgarh and Telangana, the guarantees have occupied the centre stage in the manifestos of...
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Cut out red tapism in public sector share sale
The lengthy and cumbersome process of approval and bureaucratic red tape undermines the chances of the Government selling CPSU shares to willing investors In the Budget for 2023-24, Finance Minister Nirmala Sitharaman had set a target of Rs 51,000 crore for proceeds of the sale of Union government shareholding in central public sector undertakings (CPSUs). As per available indications, the government may fall short of this target by Rs 30,000 crore. An overwhelming share of the shortfall is due to delays in the disinvestment plans of IDBI Bank (the government plans to sell 30.48 per cent of its stake as well as 30.24 per cent shareholding of LIC aggregating to a total stake sale of 60.72 per cent) and state-owned...
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India’s major subsidies bill balloons. And, it was set to happen
The underachievement of targets is a manifestation of an attempt by the ruling dispensation to artificially suppress the BE in order to show a better picture of the fiscal deficit. The Union government may end up spending Rs 50,000 crore more than the budget estimate (BE) on the three major subsidies — fertiliser, food and cooking gas — during the current financial year. The maximum slippage of Rs 25,000 crore would be in fertiliser subsidy where the revised estimate (RE) is likely to be Rs 2 lakh crore against a BE of Rs 1.75 lakh crore. Food subsidy will increase by Rs 15,000 crore with the RE rising to Rs 2.12 lakh crore against the BE of Rs 1.97 lakh crore....
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